Top Tax Tips for Retirees

We spend a lot of time on our site helping and talking to many retirees, semi-retirees and Canadians preparing for their financial independence dreams. We love doing that in a low-cost way compared to the expensive alternatives out there!

In 2025, we helped dozens of DIY investors with low-cost reports – we provided them with their own personalized retirement income projections to guide them through retirement spending. Simply put, retirement spending is WAY more fun when you have answers to these questions and more:

• Do you have enough to retire?
• When can you retire?
• Will you run out of money in retirement?
• What is the most you can spend in retirement?
• How much of a financial legacy could you leave behind?
• Should you consider taking CPP at age 65 or 70?
• How might you minimize OAS clawbacks?
• Which account should you draw your retirement income from and how much, when?

Earlier this year, we shared 7 essential items you need to have on your retirement planning checklist.

To support yet another calendar year-end we’ve updated this pillar post to share some of our top tax tips for retirees including new tax information for 2026.

Read on for the goods to support you as 2025 comes to a close and 2026 is on the horizon!

Top Tax Tips for Retirees

Beyond talking about the weather, or inflation; beyond discussing Tim Hortons coffee or hockey – Canadians love to talk taxes. 

What’s more, Canadian retirees or soon-to-be retirees love to avoid taxes!

Rightly so!

We hope to avoid lots of taxation in our retirement years as well.

In Beat the Bank by author and former banker Larry Bates, (you can read more here from My Own Advisor’s timeless interview with Larry), Larry highlighted some wealth-builders and wealth-killers:

Wealth builders:

1. Your savings rate and investing/contribution amounts.
2. Time invested.
3. Rate of return.

You and I have some direct control over a few of these wealth-builders. Essentially, the more money invested, the more time it remains invested, and the higher rate of return for your investments – the larger your retirement nest egg should be.

And for the record, dividends – don’t you know – are a good portion of stock market returns.

Source: RBC:

“Over the past 46 years, dividends have contributed an average of 3.2% per year to the S&P/TSX Composite Total Return Index, representing approximately thirty percent of the average annual total return.

While no one knows exactly when markets will move up or down, dividend income can help deliver consistent cash flow to investors. It can also provide exposure to the compelling growth opportunities that are emerging amid solid corporate earnings and improving global economic growth. Dividend paying equities can also offer a yield premium over Canadian government bonds and may offer more favourable tax treatment.”

So, dividends can provide Canadian retirees with both income today WHILE delivering an important part of a portfolio’s total return.

This means as part of wealth-building you must at least consider the compounding power that reinvesting dividends delivered from dividend paying stocks can deliver.

Further Reading is here: How to Automatically Reinvest Dividends.

Wealth killers:

Larry went on to write about retirement wealth-killers:

1. Money management fees
2. Inflation
3. Taxation.

Any one or more of these things are wealth destroyers.

You already know from reading our site that money management fees are forever – meaning the money you pay in fees to manage your investment portfolio is money you will never see again – so choose wisely when you consider how and by whom your money is managed.

If you haven’t already done so, consider building some or all of your portfolio with some low-cost Exchange Traded Funds (ETFs).

(We own a few ETFs in that list ourselves – we eat our own cooking – and have done so for many years now to offset Canadian dividend paying stocks we own for income.)

When it comes to minimizing taxation, we believe you should consider investing in the following order in your asset accumulation years as you plan for your retirement years:

1. TFSAs – first priority, at any income bracket
2. RRSPs – if your income is high enough, then
3. Taxable accounts.

When it comes to minimizing taxation in your asset decumulation years, a long list of considerations comes to mind.

Here are our top tax tips for retirees, to help avoid and/or minimize the impact of wealth killers in retirement.

Top Tax Tips for Retirees – Asset decumulation

1. Keep assets in the right location

Generally, there are four types of investment income and each source is taxed differently:

• Canadian dividends
• Capital gains
• Foreign income
• Interest income.

Canadian dividends and capital gains are taxed more favourably. Canadian dividend income receives the dividend tax credit. At the tme of this post, only half of capital gains are subject to income tax. Interest income and foreign income, on the other hand, do not benefit from any preferential tax treatment and are fully taxable.

So, in keeping the tax treatment of these four types of investment income in mind, we believe if you are going to invest in a taxable account then consider investing for Canadian dividends and/or for capital gains.

This means in retirement, consider owning any Canadian equity holdings in your taxable account. Then, you can own other assets that earn interest income or foreign income in tax-sheltered accounts like your RRSP/RRIF or LIRA/LIF.

• Here is everything you need to know about the RRSP.
• What is a RRIF and how does a RRIF work?
• Learn more about LIRAs and LIFs in this comprehensive post for retirees.

Being tax efficient with your asset location not only has the potential of significantly reducing your annual tax liability but it can also deliver a healthy tax-efficient income stream throughout retirement.

We’ve seen this direction taken with many of our clients, and they are wealthier for it.

2. Get the tax credits available to you

Tax credits, without too much more mention, are natually helpful in reducing tax liabilities.

As 2025 ends, consider some of these common tax credits that might apply to you in the upcoming tax filing year:

1. Pension income splitting – As a pensioner, you may be eligible to split up to 50% of your eligible pension income with your spouse or common-law partner to reduce the amount of income tax you may have to pay, if your spouse or common-law partner is in a lower tax bracket.
2. RRSP deduction – Deductible RRSP contributions can reduce your taxes owing. You can contribute to an RRSP up until the end of the year you turn 71. You can also contribute to your spouse’s or common-law partner’s RRSP until the end of the year they turn 71.
3. Medical expenses – You may be able to claim eligible medical expenses you or your spouse or common-law partner paid in any 12-month period.
4. Age amount – If you were 65 years of age or older, and your net income is below a specific threshold, you can claim up to thousands on your tax return.
5. Disability tax credit – If you have a severe and prolonged impairment in physical or mental functions, you may be eligible for the disability tax credit (DTC). If your spouse or common-law partner or your dependant has a severe and prolonged impairment in physical or mental functions, are able to claim the DTC, and they don’t need to claim all or part of the amount, they may be able to transfer the amount to you.
6. Pension income amount – You may be able to claim up to $2,000 if you reported eligible pension, superannuation, or annuity payments on your return.
7. Guaranteed income supplement (GIS) – The Guaranteed income supplement (GIS) provides a monthly non-taxable benefit to Old Age Security (OAS) pension recipients who have a low income and are living in Canada.

Check out how you can retire on a lower income with GIS here.

3. Split your pension income

Splitting pension income between spouses in retirement is another common way to reduce your household’s tax liability. With pension splitting, the higher-income spouse may transfer up to 50 per cent of their eligible pension income to the lower-income spouse. This reduces the household tax bill because the transferred income will be taxed at a lower rate in the lower-income spouse’s hands.

In fact, each individual can claim this amount for a total household benefit of $4,000 per year. The eligible pension depends on the type of income and/or the age of the pensioner. For example, Registered Pension Plan payments are considered ‘qualifying pension income’, regardless of the recipient’s age.

Both spouses must opt for pension income splitting on their tax forms. If both spouses have eligible pension income, only one can allocate funds to a spouse or partner in each tax year. Both must file a tax return that includes the elected split-pension amount.

What payments are eligible for pension splitting?

For those under age 65, the most common form of eligible income is from a registered company pension plan, whether defined benefit or defined contribution.  Individuals who are age 55+ can split pension income with their spouses.

Individuals without a registered pension plan can also take advantage of this tax strategy by converting their Registered Retirement Savings Plans (RRSPs) or deferred profit-sharing plans into income through a life annuity or a Registered Retirement Income Fund (RRIF). It’s important to note, however, that this income doesn’t qualify for splitting until after age 65.

If you are 65 years or older, eligible income includes:

• Registered Retirement Savings Plan (RRSP),
• Registered Retirement Income Fund (RRIF) or
• Deferred Profit Sharing Plan (DPSP).

What payments are not eligible for pension splitting?

• Canada Pension Plan (CPP) payments
• Québec Pension Plan (QPP) payments
• Old Age Security payments
• Earnings from a United States individual retirement account (IRA).

In terms of government pension sources, the Canada Pension Plan (CPP)/Quebec Pension Plan (QPP) isn’t considered eligible income, although CPP/QPP benefits can be split based on a separate set of “sharing” rules.

What are the benefits of pension splitting/income sharing?

1. It reduces the taxpayers’ marginal tax rate. By transferring income, you decrease your net income and increase the income of a spouse/partner that has a lower income.
2. It reduces the OAS clawback.

Sharing CPP or QPP is available to spouses receiving these pensions but it’s important to note that CPP sharing is not the same as pension income splitting. The complete list of eligible pension income sources can be found on the Government of Canada website with a quick Google search.

4. Convert your RRSP to an RRIF before age 71

We have many clients in their 50s and 60s considering making withdrawals from their RRSP(s) before they turn age 71. Time and time again, we believe that can be very smart to “smooth out taxes”, start taking out RRSP assets before you are forced to.

As someone approaching retirement or even considering retirement in your 60s, you should know that RRSPs must be closed/collapsed in the year an individual turns 71. It does not mean however you need to take RRIF income in that year.

What we see often at Cashflows & Portfolios (when we do retirement income projections; in a low-cost way for Canadians), is the opportunity to convert RRSP assets to a RRIF income stream to help “smooth out taxes” for a few decades.

RRIF payments can be taxed annually at a lower marginal rate, so, the tax liability that is your RRSP nest egg is essentially spread out over time, avoiding major tax hits in any given year. This means, you should consider avoiding some conventional financial wisdom: always waiting until age 71 to convert your RRSP to a a RRIF.

If fact, based on pension income splitting information we shared above, if Canadians are age 65 or older and not receiving other pension income such as a workplace pension, then converting a portion, or all, of the RRSP to a RRIF early will allow retirees to take advantage of pension income splitting and withdraw money tax-free up to $2,000 per year.

For any diligent investor, with a large RRSP balance, mandatory age-related RRIF withdrawals can translate into larger taxable withdrawals and therefore increase taxation in your 70s and 80s when you least want that burden let alone the financial complexity.

5. Consider your retirement income drawdown order carefully

Beyond the free posts, giveaways, and other free content on our site, we are happy to offer retirement projections for any Canadian at a low-cost.

Beyond keeping your assets in the right location, the next best tax-savvy opportunity is to draw down your assets in the right order to reduce taxation.

In a non-registered investment account, the great news is Canadian dividends, capital gains (and any return of capital) are taxed lower than interest income. However, this also means depending on any pension income, RRSP/RRIF assets, TFSA assets and other income streams in retirement, depleting the taxable account early in retirement may not always be smart.

In order to maximize taxes in retirement, a rule of thumb we help clients out with is withdrawals from the least tax-efficient accounts to the most tax-efficient sources – a “withdrawal order” if you will.

Here are some examples from least efficient to most efficient, depending on the clients’ assets and income sources:

• Investment income earned from investment holding companies, then
• Higher-income spouse/partner’s non-registered account, then
• LIFs, then
• RRSP/RRIFs, then
• TFSAs “near the end” for any estate planning or wealth transfer which is very tax-efficient. 

This withdrawal order is hardly a recipe but it does sometimes make sense to slowly withdraw from your taxable account(s) and/or RRSPs/RRIFs, early in retirement, to help “smooth out taxes” over a few decades as we have highlighted above and leaving TFSA assets alone to compound tax-free.

Any ideal withdrawal order will always depend on your specific situation that we can help with.

6. Make RRSP/RRIF withdrawals over time to fill up the TFSA!

The Tax-Free Savings Account (TFSA) contribution limit will be maintained at $7,000 per adult starting January 2026. 

(That’s because the TFSA limit only gets increased when the cumulative effect of the annual inflation adjustments after 2009 (the year the TFSA began) is enough to push the limit to the next highest $500 increment. We believe the next time the TFSA contribution will move up another $500 to $7,500 is 2027 – so you’ll need to wait another year).

This new limit means that a taxpayer who has never contributed to a TFSA and has been eligible for one since its inception will have a cumulative contribution room of $109,000 as of January 2026.

Here is a neat little TFSA contribution limit calculator thanks to The Globe and Mail. 

That’s a lot of tax-free compounding power!

Even if some retirees don’t need the money for spending, we see/discuss with some retirees an option to make some slow, methodical RRSP withdrawals in their 50s and 60s (i.e., to “smooth out taxes”) and move that money they will not spend into their TFSAs to supercharge more wealth-building power.

Unfortunately, there’s no way to transfer money from an RRSP to a TFSA directly, without penalty.

So, consider this before you make this move:

1. Remember you’ll pay withholding taxes on the RRSP withdrawal. When you withdraw money from an RRSP, you must include that amount in your income for the year and pay taxes on it. For example, if you withdraw $10,000 from an RRSP and earn $15,000 from a part-time job/hobby, your total income for the year will be $25,000. As a result, you’ll need to pay ~30% of the $10,000 withdrawn from the RRSP in withholding taxes. The remainder can go into your TFSA.

When you withdraw money from your RRSP, the institution that manages your account will keep a portion of the withdrawal for taxes. Essentially, it’s our Canada Revenue Agency (CRA) getting their money back sooner than later. Depending on the amount you withdraw from your RRSP, you will have *withholding taxes:

• $5,000 or less, they’ll withhold 10%
• $5,001 to $15,000, they’ll withhold 20%
• More than $15,000, they’ll withhold 30%

Here is our Government of Canada source on that.

The amount withheld may not be the amount you owe when you file your taxes. It’s important to set aside some of the money for taxes in the future if you have a high income. (*Withholding rates are slightly different in Quebec.)

2. Remember that you can’t redeposit money back to the RRSP in the future

With your TFSA, any withdrawal you make can be deposited back into the TFSA in a future year. However, with an RRSP, if you withdraw money you’re not able to redeposit that money in the future.

How to move money from your RRSP to TFSA?

Easy but with some caution. It’s a three-step dance:

1. Request a withdrawal from your RRSP

You’ll need to have cash in your account to request a withdrawal. As a result, you may need to sell some of your investments ahead of time. You may be able to remain invested as you move money from your RRSP to your TFSA, however the process is more complicated and involves a non-registered account. We recommend you contact your RRSP provider to discuss your options before proceeding…

2. Pay your RRSP withholding taxes and potentially a small deregistration fee. 

As mentioned above, when you withdraw investments from your RRSP – withholding tax will apply. Your financial institution may also levy a charge called a “deregistration fee”, which could cost you $25 or $50 each time you move money out of your RRSP that is not coverted to a RRIF first.

3. Place investments in a non-registered account and/or transfer the shares from your non-registered account to your TFSA.

If you hold a stock or ETF units in your RRSP and you want to hold those in your TFSA instead, there is no way to simply transfer it from one account to the other – at least we don’t know of any brokerage that does this directly yet but let us know!

When it comes to cash, there is no direct way to transfer cash money in a Registered Retirement Savings Plan (RRSP) to a Tax-Free Savings Account (TFSA). In order to contribute funds to a TFSA from an RRSP, you must withdraw the funds, and pay any applicable withholding tax, plus any additional taxes at tax time. You must also have the available contribution room in your TFSA.

With assets from the RRSP to TFSA, essentially there is a “deregistration” of shares or units from your RRSP, that means you’ll be transferring them from the RRSP to a non-registered (taxable) account)), then once the shares or ETF units are in a non-registered account, you could then transfer them to your TFSA at your discretion. (Note that if assets appreciate slightly during the time it takes you to arrange all of this, you will pay tax again on any capital gain. If the shares fall in value, however, you will not be able to deduct any capital losses.)

Here is a source as per RBC:

https://www6.royalbank.com/en/di/hubs/investing-academy/chapter/tfsa-faqs/ki58km3e/ki58km3u

“Can I transfer assets in-kind to a TFSA from an RRSP without tax implications?”

“No. A TFSA and an RRSP differ in structure and you cannot transfer between them. If you wish to use assets (either cash or securities) from your RRSP to contribute to your TFSA, you must first withdraw the RRSP assets (subject to applicable withholding taxes), move the assets to a non-registered account, and then contribute to the TFSA. Speak to your tax advisor to make sure this is right for you.”

With such considerations in mind, we believe for many retirees should consider taking lump sums of cash out of the RRSP, using/spending what they need, then depositing that cash when new TFSA contribution room comes up each year. This will not trigger any additional tax consequences and of course, all growth moving forward inside the TFSA is tax-free.

Here are some other tax-related updates as you enter 2026:

New tax numbers were released for 2026. Here are the facts:

• TFSA – the contribution limit will remain at $7,000 for 2026. (Both of us at Cashflows & Portfolios hope to max out our respective TFSAs in 2026.)
• RRSP – the contribution limit for 2026 is $33,810, up from $32,490 in 2025. Mind you, the amount you can contribute to your RRSP in 2026 is limited to 18% of your 2025 earned income, which includes (self-)employment and rental income, up to the RRSP dollar limit of $33,810, plus any unused RRSP contribution room from 2025, subject to any pension adjustments. (Since Joe and myself (Mark) will be retired in 2026 – we have no concrete plans to contribute to our RRSPs any longer.)
• OAS – If you receive this benefit, the OAS repayment threshold / clawback amount is set at $95,323 for 2026, meaning that your OAS will be reduced in 2026 if your net income is above this amount. Probably a very good thing – this OAS program needs to be severly overhauled.
• CPP – employee and employer (CPP) contribution rates will remain at 5.95%, but the “year’s maximum pensionable earnings” (YMPE), which is also called the “first earnings ceiling,” will increase to $74,600, while the basic exemption amount remains at $3,500. This increase was calculated in accordance with CPP legislation, and takes into account the growth in average weekly wages and salaries in Canada. The self-employed CPP contribution rate remains at 11.9 per cent, and the maximum contribution will increase to $8,460.90. (Both of us at Cashflows & Portfolios are likely to take dividends from our corporation to cover some living expenses in 2026.)

Top Tax Tips for Retirees Summary

Phew, lots to think about now in late-2025 and moving in 2026!

Beyond our list, there is of course spousal RRSPs (to split income between spouses during retirement) and also spousal loans to consider, but those are more nuanced subjects that deserve some individualized converstions during our low-cost financial projections with Canadians.

We believe if you can consider the following top tax tips for your retirement, you’ll be way ahead of most:

1. Keep assets in the right location.
2. Claim the tax credits available to you.
3. Split your pension income when you can.
4. Convert your RRSP to a RRIF before age 71, at age 65, for pension income splitting benefits.
5. Consider your retirement income drawdown order very carefully – including withdrawals from RRSPs/RRIFs over many retirement years.
6. Consider maxing out your TFSA account as long as you possibly can. 

Stay tuned for more, great, FREE content on our site. We’re happy to help.

Mark and Joe.